Questions About the Bank of America Deal

The U.S. Justice Department's $16.7 billion settlement with Bank of America Corp. is a big win. Prosecutors deserve praise for extracting the largest civil settlement with a single entity in U.S. history, as well as for forcing the bank to admit to numerous shortcomings in creating, packaging and selling defective home loans.

Yet the headline figure, impressive as it is, obscures important details, papers over the lack of criminal prosecutions and raises many questions.

Here's the most pressing of those questions: What will happen to the money? The latest settlement brings to about $125 billion the penalties large banks have had to pay to resolve civil lawsuits by the U.S. related to the mortgage meltdown. No one seems to have the complete picture on how it will all be spent.

Large chunks -- $5 billion, in Bank of America's case -- are penalties that go straight to the U.S. Treasury. Congress will allocate those as it sees fit. What becomes of the rest is a little muddy. Also unclear is whether checks are in place to make sure the money isn't wasted.

More than $900 million of the Bank of America settlement, for example, will go to six states, including California and New York. Those states' lawmakers, attorneys general and governors get to divvy it up according to state laws (if they exist). Such a large pot of money risks becoming a goody bag for state politicians and law enforcement to fight over.

Then there's the so-called soft money -- $7 billion in the Bank of America deal. This will take the form of loan forgiveness, low-interest loans and other relief to struggling homeowners and communities affected by foreclosures. An independent monitor will oversee it all, equipped with a Justice Department menu of possible projects -- principal reductions on underwater mortgages, home loans in distressed neighborhoods, construction of affordable rental units and so on.

But how much of this will be a good use of the money? How will taxpayers and bank shareholders know if it isn't? And how much of it would the bank have spent anyway? (Many of the home loans it plans to restructure have already been written down; Bank of America will get credit for the modifications anyway.)

And that isn't the end of the questions. Although the settlement doesn't preclude a criminal case against the bank or individuals, that prospect seems unlikely six years after the fact. This settlement fails to go into who was responsible for what. Nobody, except the people responsible, can regard that as a satisfactory outcome.